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Lender Salt&Lime says the “concerning” lack of knowledge hurts chances of getting affordable loans and highlights the need for more education.
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Two-thirds of adults unaware of credit score, study finds
16 January 2024
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10 minute read
Two-thirds of adults are in the dark about their credit score or the factors that influence it despite 79 per cent having at least one credit product, according to lender Salt&Lime.
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The “concerning” knowledge gap was worse among women, Baby Boomers and Gen Z, hurting their chances of getting loans, the survey released yesterday said.
CEO Will Kiln said the findings showed there was a “strong need” for people to receive lending education.
“A person’s credit score will determine whether they can secure loans under reasonable conditions,” he said.
“Unfortunately, this sort of thing is not taught in schools and a lack of knowledge can push people into loans with punishing interest rates, high fees and restrictive conditions.”
The survey of 1,021 people aged 18 years or older was conducted with YouGov between 9 October to 11 October last year, with data weighted by age, gender and region to reflect ABS population estimates.
It found 65 per cent of respondents had failed to check their credit score in more than a year, did not know it or did not know what a credit score was.
Baby Boomers (79 per cent) and Gen Z (73 per cent) were more likely not to know their credit score than millennials (49 per cent) and Gen X (58 per cent).
Additionally, almost 10 per cent fewer women surveyed (31 per cent) knew their credit score compared to men (40 per cent).
For those who understood credit scores, 64 per cent failed to name one negative factor.
For instance, two-thirds did not know that shopping around for a credit card negatively impacted credit scores. Taking out payday loans was also detrimental – a fact unknown by almost 70 per cent of respondents.
The figures were slightly improved when respondents were asked about buy now, pay later (BNPL) products, with 53 per cent aware that missed repayments could result in lower credit scores.
Mr Kiln, who co-founded the debt consolidation business in 2021 claiming to be an “education-first, socially responsible lender”, said financial institutions had an obligation to help customers understand “how lending works”.
This included explaining concepts like compound interest and the impact of fees and conditions.
“We have people coming to us to consolidate loans that had them going backwards not forwards,” he said.
Salt&Lime’s survey found over one-quarter of respondents had loan applications rejected. Taking out more forms of credit also increased the chances of rejection, with 61 per cent of respondents who had four or more forms being knocked back.
According to financial comparison site RateCity, the RBA’s hiking campaign that began in May 2022 resulted in monthly mortgage costs going up by $1,200.
In December, the Council of Financial Regulators – made up of APRA, ASIC, the RBA and the Treasury – said budget pressures were “widely felt across households due to high inflation and increased interest rates, and the share of borrowers falling behind on mortgage payments had risen”.
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